Investors are advised to maintain a balanced investment approach in 2026, with a focus on large caps or hybrids as the core allocation, complemented by selective exposure to mid and small caps, according to a report. The recommendation comes in light of improving fundamentals and macro conditions in India’s equity markets.
India’s relative valuation standing has strengthened post a consolidation-led 2025, supported by better valuations, early signs of earnings recovery, domestic policy tailwinds, and the conclusion of a trade deal. The report suggests an indicative allocation of 50% to large caps and hybrids, 40% to mid and small caps, and 10% to global markets.
While large caps are starting the year on a strong note with reasonable valuations and improved earnings visibility, mid and small caps are also seen as presenting a good entry point, the report highlights. The firm also mentions that manufacturing incentives, service sector boosts, logistics enhancements, and asset monetization from the Budget should enhance conditions for sustained equity profit growth in the long term.
In terms of fixed income instruments, investors are advised to maintain a short-to-medium duration bias, prefer accrual-based strategies, and consider long-duration G-Secs at specific yield levels. The firm recommends allocating a portion of the fixed income portfolio to performing credit, private credit, selective infrastructure investment trusts (InvITs), real estate investment trusts (REITs), and non-convertible debentures (NCDs) for a minimum period of 3-5 years.
The report also forecasts that residential real estate is likely to deliver single-digit returns in 2026 due to low rental yields. It emphasizes that future returns will rely more on micro-market selection, developer quality, and execution rather than broad-based price appreciation. Investors are advised to maintain a neutral stance on strategic asset allocation, remain patient during short-term volatility, and focus on long-term investment goals.
